Monday, May 13, 2013

April retail sales beat expectations, but mainly because they weren't as weak as expected (+0.1% vs. -0.3%). Growth in sales has moderated somewhat this year, probably due to the expiration of the payroll tax holiday, but the slowdown has not been as big as many had feared.

As the second chart above shows, the year-over-year growth in retail sales is now just under 4%. Over the past six months, the annualized growth rate was 3.4%. So we've definitely seen a decline in the growth rate of sales, but it's not a serious slowdown, and falling gasoline prices explain a good deal of the recent slowdown.

The chart above shows the retail sales "control group," which excludes auto, building materials, and gasoline station sales. The result is a much less volatile series that until about a year ago was growing at a reasonably healthy 5-6% rate. It's now growing at a 4-5% rate, a bit less than the long-term average 5% leading up to the Great Recession. The roughly 10% "shortfall" in sales since 2008 can be explained by the reduction in the labor force participation rate and the rather disappointingly slow growth in jobs. This suggests the economy is about 10% smaller than it could have been, and that's very disappointing, but regardless, the economy still shows every sign of continuing to grow.